Many analysts expected federal funds rate to be lowered to no more than three-quarters of a point, to 0.25. Surprise move came when Fed announced a range of fed funds rate.
"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," the Fed said.
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Fed reassured that it plans to move ahead with plans to snap up government and mortgage debt thus easing banks debt and allowing banks to lend more freely. The statement released by Fed said that federal banks are still considering buying long-term securities.
Economic relief is needed and Fed and government are doing everything to help out struggling economy. Price of U.S stocks mowed higher, while dollar slipped.
The Feds decision establishes a target range rather than a set level and keeping these rates for along term period. The Fed employed similar technique during 2003 period when there were worries about inflation.
Even though Fed’s decision was welcomed by investors, it does raise concerns about state of economy. As Fed might see economy must be a pretty bad shape as Fed’s announcement surprised everyone.
More surprise came from good old Uncle Sam as IRS will try to make it easier for homeowners to either refinance or sell their homes.
The plan announced by IRS Commissioner Doug Shulman would speed up process where distressed homeowners may request that a federal tax lien be mad secondary to liens by the lending institution that is refinancing a loan.
What it means is that in any case of refinance, tax liens have to be paid off first. Not many lenders were willing to lend money or refinance if there is a tax lien. This program focuses on those who paid their taxes on time but because of these difficult times are getting behind in their tax payments.
Lenders will be more than willing now to refinance properties if tax lien is secondary. Taxpayers or their representatives may apply for a “subordination”
Taxpayers may also request a certificate of discharge if they are selling a home and home is worth less than mortgage. A discharge would not relieve a person from the tax owed, but it would remove the lien from a particular property, thus easing burden of selling home quicker. If lien remains on the property, the lien would have to be paid off before home sells.
More and more money are purred into troubled banks as Fed announced that it would print out billions of dollars and use the new money to buy mortgages. Fed’s goal is to move mortgage rates lower while providing more money into banking system, which will eventually lend to consumers. With the statement Fed’s eventually may lower mortgage rates to 4.5%.
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